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Second-time home buyers enjoy favourable home loan interest rate discounts as banks compete

Competition among South Africa’s major banks, for a bigger share of the home loan market, remained fierce during Q4 2021, according to stats released by ooba.

The banks continued to compete through strong interest rate discounts, while simultaneously approving more bonds with lower deposit requirements, creating advantageous lending conditions for home loan applicants.

The average interest rate achieved for customers measured by the oobarometer was prime less 0.21%, 19 basis points lower than Q4 2020’s rate of prime less 0.02%”, says Rhys Dyer, CEO of ooba.

Our statistics also show that second-time home buyers, who, unlike first-time buyers, have access to a deposit, are enjoying even more favourable rate discounts. During 2021, the average interest rate achieved in this segment was prime less 0.42%. These statistics show that banks are pricing more affordably, which improves approval rates”.

This is clearly shown by the 3.1% increase year-on-year in our bank approval rate for Q4. The oobarometer also shows a 1.6% improvement in the percentage of applications that are declined by one bank but approved by another. In Q4 2021, almost 50% of applications that were declined initially by one back, were subsequently approved by another bank, highlighting the value of using a home loan comparison service to shop around for the most advantageous home loan deal”, he adds.

The oobarometer’s Q4 statistics show that healthy property market trading conditions prevail, with the average purchase price increasing by 3% year-on-year to end 2021 at R1 389 715. The average purchase price for first-time buyers fared even better with a 4.7% increase to end the year at R1 140 749.

While there has been a moderation in property price growth during the last two quarters of 2021, ooba’s statistics show a well-above inflation average purchase price growth of 9.4% during 2021, with an annual growth of 8.3% recorded in the average purchase price for first-time buyers – a clear indication of buyers utilising the lower interest rates to purchase larger properties.

During the same period, ooba’s average bond size increased by 5.5% while the average deposit (as a percentage of the purchase price), fell by 23.9%, once again indicating the willingness of banks to offer home loans with more favourable conditions, like lower or zero deposits. 57% of ooba’s home loan approvals in Q4 2021 were granted by banks without a deposit requirement, which is approximately 4% higher than the zero-deposit lending percentage recorded in Q4 2020.

We extracted the annual average purchase price growth as measured by the oobarometer per region across all buyers and first-time buyers and we have noticed some interesting buying trends. Properties in the Free State showed the highest year-on-year price growth of 15%. However, this growth is off a base of the lowest average property price in the country, which breached the million-rand mark for the first time in 2021 at R1 016 189. The average property price for first-time home buyers was R891 208”, Dyer says.

The oobarometer shows the average property price in the Western Cape was R1 898 490 for 2021, the highest in South Africa. However, Western Cape properties showed relatively lower growth rates of 7% overall and 6% for first-time buyers. North West Gauteng showed the lowest growth rates of 5% overall and 4% for first-time buyers but it has the second highest average purchase price at R1 524 976 for the year.

Whilst property price growth in the Western Cape and North West Gauteng have moderated, our statistics show that the demand for luxury properties above R3 million has increased. 22% of ooba’s granted home loans during 2021 fell into this luxury market, which is a growth of almost 7% since the cost of borrowing dropped significantly in May 2020”.

Looking ahead at the property market in 2022, Dyer expects interest rate increases of between 0.75% and 1% over the calendar year. Given that each 0.25% increase represents an approximate R150 per month additional repayment on a R1 million loan over 20 years, he expects interest rate hikes to impact property affordability, which will have some impact on demand and in-turn, property price growth. Dyer notes however, that “even at a prime lending rate of 8%, we are still well below the level of 10% that existed when we entered into the pandemic in early 2020”.

We thus expect the demand for new home loans to reduce by approximately 5% to 8% in 2022 compared to the record high volumes in 2021. We envisage an average purchase price growth of about 3% to 4% for 2022”, he adds.

Similarly, we predict a shift in buying activity from the lower end of the market to the mid segment of the market, as the demand for home loans at the lower end of the market contract due to affordability constraints. The rent or buy calculation is expected to start shifting back towards renting from an affordability perspective, which may result in more buy-to-let investment buyers entering the market.”

Dyer envisages ongoing high approval rates for home loans during 2022, with banks continuing to compete for new business by offering low or no-deposit lending requirements.